The invention disclosed herein relates generally to computerized trading methods and systems. More particularly, the present invention relates to computerized trading methods and systems which facilitate enhanced and anonymous trading through the systematic use of broker-dealers.
The use of computerized systems to facilitate commercial transactions has increased drastically over the past few years. Such systems range from private networks for use by subscribers to open systems available over public networks such as the Internet. These systems are being used for many different types of transactions, including the sale and purchase of airline tickets, cars, and homes, auctions and reverse auctions of various merchandise and services, and the trading of securities such as stocks and bonds. In a large number of cases, these systems are designed to eliminate intermediaries, such as agents and brokers, who were traditionally involved in executing these transactions. Indeed, these systems are touted for providing this feature, especially since it thereby eliminates the cost associated with such intermediaries.
However, by eliminating the role of intermediaries, these systems also lose out on the benefits provided by such intermediaries. Agents, brokers, and other intermediaries typically play a critical role in their respective markets. Among other things, they cultivate relationships with clients that lend stability to the overall market and leverage knowledge of the market to help clients achieve the desired results.
This issue becomes pronounced in the market for fixed income securities or bonds. The U.S. fixed income market is the most liquid, largest, and best established in the world, due in no small part to the role of intermediaries such as broker-dealers. Broker-dealers provide liquidity and perform many settlement requirements for each trade, including credit guarantees and storage of dollars. Broker-dealers also perform a key function in the bond markets by shouldering the regulatory burden which, under SEC regulations, requires broker-dealers to register, maintain specific records, and provide various reports on a regular basis. Moreover, broker-dealers have substantial expertise and experience which is brought to bear in the bond trading process. Fixed income securities are highly complex, with 4.4 million different fixed income securities outstanding, each having distinct structures, credit ratings, coupons, maturities, payment schedules, and features.
Certain systems, such as so-called “cross-matching systems,” essentially eliminate the use of intermediaries and thereby lose all the benefits provided by broker-dealers. Other existing electronic transaction systems provide a limited role for broker-dealers. For example, certain proprietary systems, sometimes referred to as “dealer systems,” allow investors to trade electronically with a specific broker-dealer or group of dealers. However, these systems do not provide investors with electronic access to market participants beyond the specific participating broker-dealers. Also, because each of these proprietary systems is limited to specific participating broker-dealers, they fail to automate interaction between broker-dealers and require investors to use different systems for each broker-dealer.
Other systems, such as so-called “inter-dealer systems,” allow broker-dealers to trade with one another only. However, these systems do not allow interaction with investors, the ultimate buyers and sellers of the securities. Clearly, a need exists for a comprehensive and effective trading system which allows intermediaries to participate and provide the benefits of their participation.
In addition, the inventors recognize a need and opportunity to improve the traditional role of broker-dealers through the use of an improved computerized trading system. Currently, fixed income transactions between broker-dealers and their customers are executed through multiple voice exchanges of information. An institutional fixed income investor will typically relay a verbal order to a salesperson at a broker-dealer. The salesperson will then verbally relay the customer's order to a trader at the broker-dealer who makes markets in that particular security. Negotiations, information requests, and eventual execution of the transaction are all done either verbally or, more recently, through electronic messaging.
While a simple execution in a liquid security, such as a treasury security, may take less than a minute from the initial call placed by the investor to the consummation of the trade, an execution in a less liquid bond can take days if the broker-dealer is bidding a bond that it wishes to own, or offering a bond that it currently owns. Likewise, transactions can take considerable time to consummate if the broker dealer needs to find a buyer of the bond that the client wishes to sell or if the broker dealer must find somebody who owns the bond and is willing to sell it. Traders and salespeople at broker dealers have to prioritize their time and attention to make sure that the most valuable trades get done. A single salesperson will have many accounts to cover, but can only conduct one transaction at a time, thus many potential buyers do not even learn about bonds that a particular broker dealer may have for sale.
There is thus a need for improved computerized trading methods and systems which facilitate the role of broker-dealers in trades and take better advantage of the benefits which can be provided by broker-dealers and other intermediaries.